That Cloud Over Social Security Doesn't Necessarily Mean Rain / There's a wide range of possibilities if system needs changes

JANE BRYANT QUINN, Washington Post Writers Group

Published 4:00 am, Saturday, May 22, 1999

There's something that will surprise you about the supposedly gloom-and-doom outlook for Social Security. By one official estimate, there's no Social Security problem at all.

The forecast you hear most often says that the Social Security trust fund will run out of money in 2034. That comes from Social Security's trustees, who make annual projections about the system's health.

But Social Security's trustees make three projections, each one based on a different assumption about future economic growth.

In public discussion, you always hear the "intermediate" projection, which warns that the trust fund will be used up by 2034. This scenario assumes that economic growth will slow from 3.9 percent last year to 1.2 percent in 2075.

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The second projection assumes super- slow growth. If that happened, the trust fund would be gone by 2024.

The third projection is the interesting one. It assumes the economy slows to a growth rate of 2.1 percent in 2075. That's almost a full percentage point better than the growth assumed in the intermediate forecast.

If the economy reaches that higher mark, Social Security's trust fund will be large enough to pay every dime in benefits that has been promised today.

The reason is that America's population growth is slowing down. The smaller the number of workers in the years ahead, the lower the growth in production and consumption.

Even with fewer workers, however, Social Security could remain whole if the economy achieved the highest of the three growth projections.

To be prudent, the country shouldn't rely on the highest growth the trustees can foresee today. On the other hand, how drastic a change in Social Security do you want to make, knowing how hypothetical the projected outcomes are?

Congress does indeed have to prepare for the possibility that the trust fund will run out. That means shaving benefits or approving a tax hike. But maybe these changes should be phased in over the next 25 years so they can be canceled if it turns out that business does better than anyone thought.

Many young people fear that Social Security won't be around at all when they retire. Their fear is unfounded. The program will still be paying benefits, at some level, unless we voluntarily vote it out of existence.

Starting around 2014, Social Security will be paying out more in benefits than it receives in payroll taxes. To fill the gap, money will be withdrawn from the trust fund, which is invested in Treasury securities. Every year, some of those securities will have to be converted to cash.

Where will the Treasury get the cash? Maybe from the income-tax surplus that's expected to start appearing in 2001. If Congress cuts taxes and there's no surplus, the money might come from other spending programs. Or maybe the government will borrow.

Here's one plausible scenario: Until 2014, the income-tax surplus is used to pay off the national debt. After that, when Social Security needs cash from its trust fund, the Treasury starts to borrow again.

At that point, the national debt would be super-low, relative to the size of the economy. Borrowing wouldn't pose the danger it did when the debt was high.

All this is conjecture. But everyone needs to understand the range of possibilities, before charging ahead with a radical change in Social Security's safety net.

The most drastic change would be to privatize the system. Instead of guaranteed lifetime payments, you'd have a private investment fund. The comfort of your retirement would depend on how well your personal investments did.

Originally, those who backed private investment accounts promoted them as a way of digging Social Security out of its hole. As more upbeat facts emerge about the program's viability, they've shifted ground.

Now they say that privatization is a better deal, even if Social Security could survive as is.